Autumn 2006, the Oval Office, the White House. Presidential aides turn down the volume of TV monitors relaying scenes of ecstatic crowds welcoming a tall bearded figure into the holy city of Mecca. Five years after he marshalled the conspiracy that sent two Boeing jets smashing into New York's twin towers, Osama bin Laden has just been hailed as leader in the country of his birth.

A security briefing has barely concluded. Even before the generals have filed out, President George W Bush turns to Treasury Secretary Lee Raymond: 'What about the oil?'

'Ninety-eight dollars and rising,' whispers Raymond, former head of Exxon.

'Get me an energy briefing,' snaps the President.

With less than two months to go until mid-term elections, the consequences of the inevitable shock caused by bin Laden's refusal to 'prop up the infidel economies of the west' with Arabian oil ('Saudi' was dropped as soon as the king was assassinated by his personal guard) are disastrous. Bush regained the White House in 2004 thanks to strong economic growth and the failure of Democrat challenger John Kerry to capitalise on instability in Iraq. Now the Republican's trump electoral card - management of the oil-addicted US-economy - has been folded overnight.

Long-range weather forecasters predict another freezing winter for the US east coast and another bout of hurricanes and floods in southern California and Texas. Seasonal demand for heating oil is already high, and refineries are at full stretch - to the delight of executives in Houston, Oil City and capital of Bush's home state of Texas.

"Mr President: (Saudi) Arabia accounts for 10 million barrels a day, or 12 per cent of world production. We will have to learn to live without this for the foreseeable future.

In the short term there will be chaos, for which it is difficult to plan. However, oil is the Arabian state's only significant source of revenues, so it is likely that in the medium term a return of some production is likely.

But past events give little cause for optimism. History shows that in the aftermath of the Iranian revolution, output from the country fell from 5.25m barrels in 1978 to 1.3m barrels in 1980 - a fall of 75 per cent - and it never recovered. If - a big if - this proves a guide, more than 7mb/d of oil will be lost. A small proportion of Arabian production may find its way back into the market through economic necessity, but even so the capacity of other oil exporting countries to take up the strain is highly questionable.

As you know, in response to hot global demand and the attacks on its oil installations that were the first indications of bin Laden's revolution, Opec held a series of emergency meetings in 2004/05, where it agreed to increase its crude production quotas to just under 29m b/d. Including quota-busting, this meant about 31m b/d, about 37 per cent of world crude production. Saudi Arabia increased its production in to 10m b/d, but was still the only country with meaningful capacity left.

Outside Opec, you will be aware of increases to capacity in West Africa, Russia and former Soviet Republics. President Putin has pushed to increase production in the hope that Russia can perform a role as a 'swing producer' in case of Saudi default. But while it has edged up by some 1mb/d from 9m b/d in 2004, it is unclear how far this will go to meet demand.

Meanwhile, security threats to existing export routes via the Black Sea pipeline and via tankers through the Bosphorus remain. The Chechen/al-Qaeda alliance is a real threat and environmental protests have also affected pipeline construction in the Caspian and Sakhalin regions. Putin is still relying on the Baltic and northern European pipelines to get oil out, then the Europeans get first crack at it. Meaningful increases in other areas are unlikely.

Your economic policies, Mr President, saw successful and sustained growth not only at home, but globally. The developing world, particularly China, is very thirsty for oil. Relying on what we believe are recent increases in production is inexact and unsure. And there are other risks.

The Kuwaiti regime is on the point of collapse which would see another 2m b/d lost. And we gave up on Iraq a year ago, when, as you promised before the 2004 election, the boys came home - a further 2.4m b/d loss. Beyond that, who knows? Longer term, the impact of oil shocks on unemployment is well documented and this may concern your successor at the 2008 Presidential election.

For now, what we do know is that there are 1.4bn barrels of government-controlled stocks in the west. With, say, 7m b/d from Arabia, that gives us a buffer of 200 days to decide what to do. That, of course, is your decision."

The President looks up from the paper. The price of oil has just ticked past $100 a barrel.

A 'counterfactual' scene maybe, but even if traders, analysts and economists loathe to make judgments weeks or even days ahead, such a scenario can no longer be dismissed as self-indulgence.

In the wake of the al-Qaeda attacks and hostage-taking in the Saudi city of Khobar last weekend - which led a former CIA official to say that if an election were held now, bin Laden would win by a 'landslide' - sober experts are prepared to indulge in 'what if' conversations.

And why not? Political instability is now driving the most volatile oil market for years. With oil at $40 a barrel, unexpectedly strong demand in America and across the OECD area- coupled with cur rently rampant requirements in developing nations, particularly China - is underpinning the price.

However, while the rate of growth in supply has moderated slightly this year, the trend has been upwards, while the planned capacity increases over the next two years in the above memo are not fictitious.

So the situation appears more balanced than the oil price would suggest. Although the International Energy Agency believes its figures downplay global demand, and notwithstanding the long positions taken by hedge funds, it looks like there is a very considerable 'al-Qaeda premium' today. There are also concerns over Nigerian supplies as continued ethnic violence threatens production, and in Venezuela, where the future of President Hugo Chavez is uncertain.

Looking to the shorter term, analysts point to risks that have been prefigured in recent events. Julian Lee, senior energy analyst at the Centre for Global Energy Studies, says the current fear is further attacks in Saudi Arabia, this time targeting critical facilities such as the Gulf ports of Ras Tanura and Juaymah, or refineries such as Yanbu on the Red Sea coast near Mecca. Equally, an attack could hit southern Iraq, where pipelines have been damaged and plans were foiled for an attack on the Basra export terminal.

'An attack which led to withdrawal of supply would have a more serious impact than we have seen so far,' says Lee. He would not be drawn on the price. However, traders point to high $40s and into the $50s.

But Lee accepts that prolonged political instability and, however unlikely, the fall of the House of Saud, would have severe implications for oil supply.

'Quite clearly, it would have a very big impact. If you had a problem in Saudi Arabia, strategic stocks would be used up very quickly. In terms of the price it becomes "pick a number".' He makes the comparison with the Iranian revolution, when prices hit $80. The world is less reliant on oil now, but the impact from Saudi Arabian disruption would be greater than Iran.

Deutsche Bank global energy strategist Adam Sieminski- who does not like to spend much time thinking of hypothetical situations - says: 'If there was a revolution in Saudi Arabia, that is 8m b/d [today's production] that you lose. Strategic reserves would be drawn down. That is your $100 scenario.'

Beneath the political instability, geological pessimists indicate that in 2008 the world will have reached the peak of oil production. From that point on, most producing areas will be in decline. Except for the Middle East.

The Association for the Study of Peak Oil & Gas (A spo), says that, for example, US production peaked in 1971, Russia in 1987, Britain in 1999. Middle Eastern countries have later peaks - Saudi Arabia's is calculated at 2008, Iraq's in 2017, Kuwait's in 2015. These calculations are highly controversial, relying on extrapolations not just of geological data but of future demand. Even if they were not, it would not mean oil ran out tomorrow, but it would lead to a reappraisal of the $20 price norms that have existed in recent years.

And, as Aspo's Professor Kjell Aleklett says: 'The region of the world that is not currently peaking is the Middle East. Instability there comes when it has never been more important that supply is not disrupted.'

The geological facts are in dispute, but the political importance of the Middle East is not. Beyond initial panic, the key question in our 'what if' scenario is whether the Saudi loss could be made up. Lee suggests that planned increases in the next few years - 500,000 barrels a day in West Africa, up to 2m b/d in Russia and former Soviet Republics, and some 2 m b/d spare capacity in Opec will be available.

The question is, will demand for oil rise by that amount? Optimists believe the growth rate in US and Chinese economies is likely to slow towards the end of the year. But presidents like feel-good economic growth, especially in election years.

Oil is already an economic problem of the greatest magnitude. Whatever the scenario, it looks certain to dominate global politics for at least the next decade.